Stocks are edging lower ahead of a crucial reading for May CPI that could challenge the market’s theory on ‘peak inflation’ in the world’s biggest economy.
U.S. equity futures edged lower Friday, following on from a late-hour sell-off on Wall Street that loped more than 600 points from the Dow, as investors nervously awaited a crucial reading of May inflation ahead of the start of trading.
Core consumer price pressures are expected to moderate from multi-decade peaks, according to consensus forecasts for Friday’s all-important CPI reading, but the ongoing surge in oil and energy prices is likely to hold the annual pace of headline inflation in place at around 8.3%.
Record high gasoline prices, which nudged closer to the $5 a gallon mark last night, according to data from AAA, will continue to drive headline inflation rates as crude oil holds firmly above the $120 per barrel mark, while food prices extend their recent run-up amid transport snarls and uneven planting seasons.
Moderating wage growth, however, and easier year-on-year price comparisons for items such as used cars will help mitigate gains in core inflation, as jobless claims creep higher and firms pause hiring plans amid the broader economic uncertainty.
Stocks Mixed, Inflation, DocuSign, AMD, Stitch Fix In Focus – Five Things You Must Know
The competing data will not only provide details as to the pressures faced by American consumers — whose spending drives around two-thirds of the world’s biggest economy — but also the near-term reaction of the Federal Reserve, which is tasked with brining inflation back closer to its preferred 2% target with rate hikes and liquidity pullbacks.
And while a 50 basis point rate hike from the Fed next week is a virtual lock, the CME Group’s FedWatch tool now suggests an 18% chance of a 75 basis point rate hike in July, up from just 10% a month ago.
Part of that move is linked to the European Central Bank’s recent hawkishness, and bets that Christine Lagarde and her colleagues will lift rates this summer, with deeper hikes in the fall, as inflation hits record highs in the single-currency area.
Growth prospects are also in focus as a result of the inflation surge, and while Janet Yellen told a New York Times ‘Deal Book’ event last night that there is “nothing to suggest that a recession is in the works”, the U.S. economy did contract sharply over the first quarter and is now only expanding at a 0.9% clip, according to the Atlanta Fed’s GDPNow forecasting tool.
With all that at play, European and Asian stocks were notably heavy Friday, although data from China showing a 14-month low in the country’s producer price index offered some relief for world shares.
Still, the region-wide Stoxx 600 was marked 1.54% lower in early Frankfurt trading, following on from a 0.88% slide for Asia’s MSCI ex-Japan benchmark.
In the U.S., benchmark 10-year Treasury bond yields dipped to 3.036% while and the dollar index rose 0.21% against a basket of six global currencies to 103.439 in early European trading.
On Wall Street, futures tied to the Dow Jones Industrial Average indicating a 100 point opening bell dip while those linked the S&P 500 are priced for a 10 point fall. Futures linked to the Nasdaq are looking at 8 point opening bell gain.
DocuSign (DOCU) – Get DocuSign Inc. Report shares were active in pre-market trading, crashing more than 25% after the after the online signature vending group posted weaker-than-expected first quarter earnings and forecast muted revenue growth for the remainder of the year.
Netflix (NFLX) – Get Netflix Inc. Report shares, meanwhile, slumped 3.7% after analysts at Goldman Sachs lowered their rating and price target on the online streaming group amid surging inflation and heightened competition.
Stitch Fix (SFIX) – Get Stitch Fix Inc. Report shares, were also down sharply, falling 15.5% after the online fashion retailer posted weaker-than-expected third quarter sales and unveiled plans to cull around 15% of its staff.
On the flipside, Advanced Micro Devices (AMD) – Get Advanced Micro Devices Inc. Report shares moved 1.3% higher after the chipmaker struck a bullish tone during its annual investor day presentation.
